Decision Affirms Vertical Contracting Rights

Tuesday's federal appeals court decision in the FCC-Comcast case has the effect of allowing firms to decide what terms to offer in vertical relationships. The FCC's proposed "net neutrality" rules would have tended to restrict ISPs so that they would have to treat all content providers identically. By analogy, must a grocery store carry all potential supplier's products? If they do, can they decide to display some at favorable end-of-aisle locations and others on the bottom shelf? Or do we need "food fungibility" rules?

Even the FCC supporters I have heard, admit that high bandwidth content, like that supplied by BitTorrent, may place higher resource costs on an ISP and that treating it differently from other content providers may be warranted. Similarly, grocery stores treat different products differently based on expected demand. They allocate eye-level shelves to top sellers and bottem shelves to rarely purchased items. The grocery store is optimally deciding how to allocate its complementary resources (shelf-space) so as to generate value to consumers.

Comcast's detractors' argument is usually based on the claim that ISPs could favor their own content over unaffiliated content for non-cost related reasons. This is like the grocery store putting a store-brand item, rather than the name-brand item, in the preferred location. But why sink a valuable resource (preferred shelf-space) into a loser store-brand when they could use it to promote a winning name-brand at a higher price? Even worse, customers seeking the name-brand in vain, will choose a different grocery store that better caters to their tastes. Similarly, consumers enjoy an ISP connection only to the extent that it enables access to their preferred content. ISPs who miss-manage their bandwidth to diminish the value of this content risk driving consumers elsewhere.

Other analogies I toyed with:

1. Do car makers get to choose which parts suppliers to use? - "parts impartiality"
   
2. Do magazine editors get to choose which articles to publish? - "article ambiguity"
   
3. Do theaters get to choose which movies to show? - "movie maliability"
   
4. Do radio stations get to choose which songs to air? - "song substitutability"